Committee publishes report on Pre-Legislative Scrutiny of the Draft Local Audit Bill

• Report: Draft Local Audit Bill
• Draft Local Audit Bill ad-hoc Committee

Draft legislation intended to deliver a more efficient and transparent local audit system may not save money, potentially undermines the integrity of the audit system and may fail to deliver accountability, warn MPs at the end of detailed pre-legislative scrutiny.

Launching a report, chair of the Local Audit Bill ad-hoc Committee, Margaret Hodge MP, said:

"We heard conflicting evidence about whether and how much public money is likely to be saved by implementing this legislation. Given this uncertainty it's essential the Government commissions and publishes a new financial impact assessment alongside the Bill when this is presented to Parliament.

The Committee is concerned that the proposed new arrangements as set out in the draft Bill will result in a more complex and fragmented audit regime. We believe that the principle of independent audit - which has guided public sector audit for the last 150 years - could be undermined if the bill is not amended.

It will become more difficult to ensure value-for- money if provisions in the Bill are not strengthened so that appropriate data which enables proper analyses and comparisons to be made are required by statute. 

We call on the Government to listen to our concerns and ensure that legislation is revised to impose a statutory requirement on local bodies to form strengthened audit committees and for any decision to remove an auditor to be made only in agreement with full council or the relevant governing body. 

Most of our witnesses criticised the proposed independent auditor panels and felt that they imposed an unnecessary additional bureaucratic burden.

Witnesses expressed strong support for the retention of a central procurement capacity for appointing auditors to local bodies in order to deliver best value on audit fees. We recommend this be included in the Bill when it is presented to Parliament.

The legislation also has some gaping holes that pose significant risks. Unless stronger safeguards are put into the legislation, whistleblowers might not be able to draw attention to serious failures in local governance. In particular, we call for the Comptroller & Auditor General of the National Audit Office to be named in the Bill alongside the appointed auditor, as another prescribed person who may be contacted by any whistleblower.

Lastly, we are very concerned that the draft Bill makes no provision for comprehensive like for like value for money comparisons which would enable informed judgements about the way local bodies spend taxpayer’s money. It is essential that the Bill is re-drafted to include a systematic process for benchmarking and like-for-like comparisons between public bodies in the new regime."

The Committee also: 

• Criticises the Department of Health for failing to provide information in sufficient time for MPs to scrutinise properly the proposed audit and accountability arrangements for Health trusts and commissioning groups.
• Warns that the Financial Reporting Council does not currently understand its proposed new role or the characteristics particular to public sector audit.
• Calls for the draft bill to be amended to provide the Comptroller & Auditor General with a duty to published detailed mandatory guidance to accompany the code and to report annually to Parliament on the Code's effectiveness.
• Calls for DCLG to establish a publically accessible register that identifies when a body has not appointed an auditor when local bodies produce late accounts and where an auditor’s opinion qualifies his conclusions about financial statement or value for money conclusions.
• Calls for the DCLG to provide clear indemnity provisions for auditors and to take advice from the Comptroller & Auditor General on this issue where necessary. 
• Calls for the Cabinet Office to take on responsibility for the National Fraud Initiative and for all possible uses of NFI, to be set out on the face of the bill.